Estate Planning on Behalf of Incompetent Persons Under Durable Powers of Attorney and Massachusetts Conservatorship Law
A Summary of the Law, Written Primarily for Lawyers
The fact that a person is legally incompetent does not preclude action being taken on the person’s behalf. If so empowered, an attorney-in-fact or agent under a durable power of attorney (“DPOA”) or a guardian or conservator appointed by the Probate and Family Court may be able to establish an estate plan for an incompetent person.
I. Durable Powers of Attorney
If the person who is now legally incompetent had, while still competent, executed a DPOA on or after September 20, 1981 under Massachusetts General Laws, the attorney-in-fact under such a document would have the legal authority to act on behalf of the principal. The issue that is then raised is whether the DPOA will be deemed effective for purposes of the contemplated transactions. (In this regard, see Title Standard No. 34 of the Real Estate Bar Association of Massachusetts.)
It may appear on the surface that a DPOA would take care of any legal issues involved in preserving or transferring real estate or other assets in case of legal incompetence. Lurking below the surface, however, are problems that could arise in attempting to use a DPOA.
Problems with a DPOA could arise due to a lack of specificity in its stated powers. In practice a DPOA is only as good as the respect it receives. For example, a conveyancer or title insurance company could reject it due to language which may cause possible title or marketability problems. Further, financial institutions such as life insurance companies, banks or stock transfer agents may reject it due to lack of specificity or due to the age or “staleness” of the document.
Perhaps most significantly, a line of federal estate and gift tax cases developing throughout the United States has established that a gift made under a DPOA may be invalid if the principal does not specifically authorize the agent or attorney-in-fact thereunder to make such a gift. The rationale for the holding in these cases is that at common law an agent does not have the power to make gifts absent the grant of specific authorization by the principal. Based on the holdings in these cases, an uncompensated transfer or below-market sale made under a DPOA may be deemed to have been invalid, and, if a retransfer is then necessary, problems could arise. If a retransfer is required, a new disqualification period from MassHealth (i.e., Medicaid) would begin running in most cases, or if the probate of an estate is required, estate recovery claims by the Commonwealth of Massachusetts for former recipients of Medicaid may arise.
II. Petitions for Estate Planning Under Massachusetts General Laws Chapter 201, Section 38
Where a person is legally incompetent and had not executed a DPOA with explicit gifting powers, the possibility of petitioning for estate planning under Massachusetts General Laws should be explored by a guardian or conservator.
In Strange v. Powers, 358 Mass. 126, 260 N.E.2d 704 (1970), the court stated that a ward should not be deprived of “the privilege of making an intelligent, common sense decision in the area of estate planning.” Until recently, however, it appeared that the authority of the guardian or conservator under the Massachusetts statute was limited to making outright gifts or to taking other actions to minimize taxes, according to the holding in the case of Matter of Murray, 408 Mass. 731, 563 N.E.2d 217 (1990). According to Strange, the Probate Court has the authority, experience and competence to handle a broad range of such questions. The Strange case concluded that the modern trend of cases both in England and in the United States was that the ward’s disability should not get in the way of the best interests of the ward’s estate.
A conservator may have a fiduciary duty to petition for estate planning on behalf of the ward. A careful guardian or conservator should therefore review all estate planning options that would have been available to the ward. The guardian or conservator should consider that in the absence of an attempt by the fiduciary to petition for estate planning for the ward, the heirs of the ward’s estate could later, with the benefit of hindsight, attempt to have the fiduciary and the fiduciary’s attorney held personally liable for any loss that the ward’s estate may have suffered, whether caused by lawsuits from creditors, avoidable taxes, long-term care costs that could have been covered by Medicaid, or other lost governmental benefits.
The statute gives the conservator broad power to make gifts. It appears that the conservator need not implement all of the provisions of the ward’s will, and a conservator would have discretion to make gifts which would have the effect of altering the testamentary disposition in the ward’s existing estate plan. The conservator therefore appears to have the authority to fulfill the ward’s unwritten intentions to make changes to the ward’s existing estate plan, or, as appears to have occurred in Matter of Jones, 379 Mass. 826, 401 N.E.2d 351 (1980), to implement the intentions of the ward’s unexecuted will via the use of trusts.
In determining whether an action would be in the best interests of the ward’s estate where little or no evidence exists of the ward’s wishes, the court in Strange looked first to what planning steps would have been recommended by the ward’s attorney: “If it were not for the circumstances of the ward’s advanced age and mental condition, her own counsel would undoubtedly be advocating establishment of a similar estate plan.” The court in Strange then looked at what reasonable steps the ward would probably have taken, quoting Lord Eldon in the English decision of Ex parte Whitbread, 2 Meriv. 99 (1816): “Where there is no evidence of any settled intention of the lunatic before his insanity in regard to the matter, or of any intention formed during his rational moments, the Court will presume that were the lunatic sane he would act in the matter as any reasonable and ordinarily generous man would act under the same circumstances.”
Many estate planning steps are not specifically listed in the statute, but it contains broad language and now appears to encompass any type of planning that the ward could undergo if legally competent. A quote in Strange from the California case of Estate of Christiansen, involving a tax-oriented issue, may be instructive on how to approach issues that are not specifically listed in the statute: “To refuse to permit the management of the incompetent’s estate in the manner that a reasonable and prudent man would manage his estate may, in many cases, lead to the improbable conclusion that it was the intent of the incompetent to enrich the taxation authorities rather than the natural or declared objects of his bounty.”
III. MassHealth (i.e., Medicaid) Issues Under Massachusetts General Laws
Since many competent persons engage in Medicaid planning to impoverish themselves and become eligible for payment of their nursing home costs through Medicaid, a guardian or conservator should determine whether the ward would do so, and if it cannot be determined, should consider petitioning the Probate Court for authority to take such action in the best interests of the ward’s estate.
While Medicaid planning is not specifically stated as a goal in Massachusetts General Laws, it appears from the language of the statute and the cases thereunder that an inference (if not a presumption) should be drawn that the ward is a reasonable and prudent person, who, when confronted with the high costs of nursing home care and the possibility of applying in the future for payment of such costs by the Medicaid program, would want to take steps to qualify for Medicaid; such a ward would opt to make gifts of the ward’s assets if such a transfer would not disqualify the ward from Medicaid at all or would disqualify the ward from Medicaid for a period no longer than the ward’s then remaining assets and income would be able to cover.
Although the court did not have to reach the issue in Strange, dicta in that case seems to suggest that the conservator of a ward who is deprived of a right to common sense estate planning, such as Medicaid planning, may be able to argue the failure of Equal Protection under the United States Constitution.
If a conservator has a fiduciary duty to petition for estate planning on behalf of the ward, as was earlier suggested, then Medicaid issues should be carefully explored. Although no Massachusetts cases on point would require a guardian, conservator or other fiduciary to attempt to obtain the ward’s eligibility for Medicaid, the Illinois case of In the Matter of Guardianship of Mary Jane Connor, 170 Ill. App. 3d 759, 525 N.E. 2d 214 (1988) should be considered. In that case, the Court held that the guardian had breached its fiduciary duty by failing to investigate and pursue the ward’s eligibility for governmental benefits, resulting in the unnecessary dissipation of the ward’s assets. A conservator, as well as such fiduciary’s attorney, should be wary of the holding in the Mary Jane Connor case and be concerned about the possibility of being held personally responsible for failing to attempt to obtain Medicaid eligibility for the ward.
IV. Procedural and Strategic Issues Under Massachusetts General Laws
The mechanics of petitioning for estate planning under Massachusetts General Laws are set out in straightforward fashion in the statute. The petition must briefly outline the requested action and expected results, and indicate that such action is consistent with the intentions of the ward insofar as they can be ascertained. In practice, a citation is issued by the court, and after the return date a guardian ad litem is appointed.
While some guardian ad litem reports are impounded by the Probate and Family Court, a report rendered by the guardian ad litem can be made available to the petitioner; county practice should be reviewed. In practice, the guardian ad litem often discusses proposed findings with the petitioner’s attorney before putting the report into final form.
After the guardian ad litem has filed a report, the petitioner must schedule a hearing on the petition. Since the proceeding involves making a decision for the ward, the petitioner’s attorney should make a careful review of cases involving the substituted judgment doctrine, such as Superintendent of Belchertown State School v. Saikewicz, 373 Mass. 728, 370 N.E. 2d 417 (1977). Further, the petitioner should consider preparing proposed findings of fact, proposed conclusions of law and a proposed judgment for the convenience of the judge at the hearing.
The petition can be made by a temporary conservator but would probably have to be refiled if a permanent conservator is thereafter appointed before a judgment on the petition has been made. For practical purposes, therefore, it may be advisable to wait for the appointment of the permanent conservator to take place before petitioning the court.
Where time is of the essence, the petitioner should consider, at the time of the initial filing, making a motion for a short order of notice and a motion for the immediate appointment of a guardian ad litem. In case the judge hearing the latter motion is unfamiliar with the attorneys in the county who specialize in estate planning and/or elder law, it may be advisable to present the judge with a list of such attorneys so that a qualified guardian ad litem can be appointed.
Where time may appear to have run out on the process, the attorney for the petitioner should consider that the Probate and Family Court may have the equitable power to direct the entry of an order, judgment or decree “nunc pro tunc” in the furtherance of justice.
Call the office of Brian E. Barreira at 508-747-8282 to schedule an appointment today. He has offices conveniently located in Plymouth and Hingham, Massachusetts, so he is always easy to reach.